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Pound lower against dollar after call for UK election

FILE PHOTO: U.S. dollar and Euro bank notes are photographed in Frankfurt, Germany, in this illustration picture

By Kate Duguid

NEW YORK (Reuters) - The British pound fell against the U.S. dollar on Thursday following Prime Minister Boris Johnson's call for a national election.

Johnson said he was asking parliament to approve a national election on Dec. 12 in an effort to break the political deadlock over Brexit and ensure the UK leaves the European Union.

The added uncertainty brought on by an election may hurt the pound <GBP=> in the near term. It was last down 0.47% at $1.285 and 1.43% lower this week. Having surged to a 5-1/2 month high on Monday, sterling fell on Tuesday after British lawmakers blocked Johnson's plan to push through a withdrawal agreement and get the UK out of the EU on Oct. 31.

"Is the election positive for GBP? I argue no. The campaign will see polling swings, and investor inflows may slow whilst they wait for the result. It's why we are long EUR/GBP," Nomura analysts told clients.

With the Brexit end game more uncertain than traders thought last week, the pound was set up for another rocky period. Against the euro it dropped 0.26% to 86.38 pence per euro <EURGBP=>.

However, the pound has risen nearly 5% in October as the chances of a no-deal exit have been all but eliminated. It was against that backdrop the pound retraced some of its initial losses after Johnson announced his third attempt to force a snap poll.

The dollar index benefited from the move in sterling, last up 0.16% against a basket of rival currencies at 97.65 <.DXY>.

The euro was 0.21% lower at $1.111, though it had already sunk against the dollar prior to Johnson's announcement. Despite some optimism from Mario Draghi's final news conference as president of the European Central Bank on Thursday, the euro fell, pulled down by business surveys which point to stagnating economic momentum in the euro zone.

"We came into the morning thinking that there would be a bit more optimism than usual from Draghi as it is his last meeting, and we didn't think he would want to end his tenure on a downbeat note," said Thierry Wizman, global interest rates and currencies strategist at Macquarie Group.

"We detected some optimism towards the end of the press conference which is why the euro rallied at around 9 a.m. ET. And then it sold off. There was no news in the pipeline to help it stay up."

(Reporting by Kate Duguid in New York and Sujata Rao and Elizabeth Howcroft in London; Editing by Hugh Lawson and Richard Chang)